Porsche AG has entered the Futures market Porsche pays for parts and labor in euros to build cars they export to the United States, where drivers pay in dollars. As the dollar weakens, Porsche will get fewer and fewer Eurosâ worth of revenue for each dollar sale. Porsche tried to raise the dollar prices of their cars in the United States to compensate for the weaker exchange rate, in the early 1990's. Customers fled, Porsche nearly wiped out its American franchise. Today, Porsche's strategy is by far the most conservative. Porsche has hedged all its exposure to the dollar through July 2007. Probably by purchasing puts, an adding the cost onto there cars. That means it can keep its prices steady in the United States. The euro had risen so much against the dollar that it would be cheaper for Germans to buy high-priced German cars in the United States and pay import duties and other costs to have them shipped back to Germany than to buy them at home. Porsche's Carrera GT, sells for 452,690 euros in Germany. A German buyer could save enough in America to buy one of Porsche's new Cayenne sport utility vehicles as well. NY Times
Do you see the implications of this? It means the marginal profits of even the worlds biggest global players, comes down to a companies ability to trade currency futures. No matter how a company cuts costs, no matter if the "200mph," car can do âzero to 100mph to zero,â in ten seconds. Weather the company makes profits or not depends in a large part on its skill in hedging its home currency against the currency of its markets.